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Rent vs. Own: Is Now The Right Time To Buy Your First Home?

Rent vs. Own: Is Now The Right Time To Buy Your First Home?

mortgages when you buy vs renting

There was a time when buying your first home and securing your first mortgage was an integral part of the Canadian dream. Fast forward to today, and it’s evident that this dream has undergone a profound transformation. With prices soaring to new heights and housing markets experiencing unprecedented growth, the path to homeownership has become steep and uncertain. The very investment potential of real estate, once seen as a surefire way to secure one’s financial future, is now shrouded in doubt for many.

Simultaneously, the world has witnessed a big shift in how we work, thanks to the surge in remote job opportunities and the march toward a global economy. This evolution has made the idea of renting more appealing than ever before. It’s no longer just about the four walls you call home; it’s about the freedom and flexibility that renting offers in an ever-changing world.

Should you buy a home or rent one is the burning question…

Canadians find themselves at a crossroads—the age-old debate of rent versus buy is more pertinent than ever. With an array of variables at play, both personal and financial, the decision to rent or buy your first home now hinges on a balance of individual circumstances, future aspirations, and even personality traits. 

As an experienced mortgage broker in Barrie, I am here to offer you expert advice and to guide you in finding the mortgage solution you need; if you do decide to buy in today’s unique real estate market. But first, let’s discuss a few things to consider before you decide whether renting a home or buying one is right for you and your family.

Owning Your First Home – What Are The Benefits?

  • It’s a good way to build equity – When you make a mortgage payment, you build equity so each monthly payment takes you one step closer to owning your own place. (The bank technically owns it until your mortgage is paid off but you do own your equity in it.)
  • It’s a good investment – Homes usually go up in value, so if you buy a home within your budget, the payoff can be substantial. Holding onto a property for five years or longer should increase its value. 
  • Your costs are stable – With a fixed-rate mortgage, your mortgage payment is predictable and more stable than renting. Renting you aren’t in control of when increases happen.
  • Privacy – Your home is your castle and you can design and update the interior to suit your specific style.

What Are The Downsides of Owning a Home?

  • It’s a commitment – You can’t just sell your house overnight or break your mortgage at the drop of a hat (not without a penalty, at least). 
  • You have to pay for upkeep – Regular maintenance and repairs are necessary.
  • Mortgage payments may be higher than rent – Depending on your location, it’s usually more costly to own than to rent.
  • Payback can be slow – It can take time for the value of your home to increase.
  • Less disposable income – In some cases, a homeowner may find themselves “house poor” – meaning a big part of their income goes towards the costs of their home with little left over for little things they enjoy like take out or extra-curricular activities.

Renting A Home – What Are The Benefits?

  • It’s usually cheaper – Rent tends to be lower than mortgage payments and may cover other costs, such as utilities, hydro, cable, and internet.
  • You have more flexibility – Most leases are one year, but you may find an agreement that’s month-to-month. If you like to travel or change jobs, renting may work best for you.
  • Little or no maintenance – You call your landlord instead of fixing things yourself. When you own your own home, it’s all up to you to fix, maintain, and pay for all repairs or upgrades.
  • You’ll have more disposable cash – As a renter, you’ll likely have more money to sink into investments or travel.

What Are The Downsides of Renting?

  • You’re not building equity – Your monthly rent cheque goes towards paying someone else’s mortgage.
  • The landlord is in charge – Renting means you’re living on someone else’s property – and they get to make the rules.
  • There are no guarantees – Rent hikes are inescapable. A spike in your rent could trigger you to start packing. Or, your landlord could decide to sell or renovate the property leaving you looking for a new place to live on short notice.

So, How Do You Decide Whether or Not to Take on that Mortgage?

Before you make the leap from renting to owning, it’s wise to analyze your current financial situation and short-to-medium-term goals. Talking to an expert, like an accredited mortgage broker, will help you assess your personal financial situation and readiness for homeownership. Before taking that step you should also ask yourself these questions…

Where do you want to live?

If houses are costly in the neighbourhood you’re currently living in, you might want to consider looking elsewhere.

Can you pass the 40% rule?

The “40% rule” says you should be able to meet your housing costs (principal and interest, taxes, and heat), as well as your other debts (car loans or credit cards), with no more than 40% of your gross income.

How stable is your employment?

Do a realistic assessment of your employment picture before making a decision. You need to show that you can afford your mortgage payments long term.

How long do you plan to stay in your home?

As a general rule, the longer you live in a home, the better the investment. 

Are you ready for the commitment?

Homeownership is a big step. It means you’re saying “yes” to making the biggest purchase of your life, not to mention property taxes, home insurance, maintenance, and utilities. 

How Much Will It Cost To Own A Home?

If you’re convinced that homeownership is for you, the next step is taking a detailed survey of the financial obligations of homeownership. You can consult a mortgage calculator, like the one on my website, for a start, but here are some guidelines.

  • Your down payment should be 5% to 20% – If you put down less than 20%, you’ll have to pay “CMHC insurance” – a mandatory mortgage default insurance policy for those who buy with a down payment of less than 20%.
  • Closing costs vary between 1.5% to 5% – This includes fees for a lawyer, appraisal, home inspection, and property tax adjustments.
  • Home insurance: $50 to $200 per month – A home is an enormous investment, you will need to insure it.
  • Your home’s upkeep will be 1% to 4%  – Every home needs some maintenance over time which could be a new water heater, roof repairs, or even a furnace. Regular upkeep protects your resale value.

As a First Time home buyer, incentives like the First Home Savings Account, the RRSP Home Buyer’s Plan, the First Time Home Buyers Tax Credit, and the Land Transfer Tax Rebate can all save you a bundle when purchasing your first home and saving for your mortgage down payment.

So, Renting vs. Owning – What’s The Answer?

There’s no clear answer to this question, and it will require some number-crunching on your part. Your current personal and financial situation, as well as your goals and work situation, will largely determine what’s right for you. What’s right for one person might not be for another, so don’t get too hung up on what your friends and family have done in the past. Their financial situation isn’t yours, and yours is all that matters in this decision.

Ready to get pre-approved for the mortgage you need?

If you decide to take the plunge into homeownership, give me a call and we’ll find the lowest mortgage interest rate possible. I offer very competitive rates and invaluable advice to get you started on your home-buying journey. Plus, I have mortgage options the banks don’t.

Not quite ready for home ownership?

If now is not the right time for you planning for the future is a smart action to take now. Call me today to talk about down payment savings accounts, how you can use your RRSPs later on as part of your down payment and to find out the best ways to invest your savings so that you can work towards your ultimate goal of buying a home. 

TIP: Aim to put away 20% of your after-tax earnings towards savings and investments on a regular basis to put toward your down payment.

Whether you’re ready to take the leap into home ownership or you need to rent until the time is right, I can help you devise a plan to help you achieve your financial goals. Buying a home and securing the mortgage you need to do so are big goals. They don’t have to happen overnight, and for many achieving them takes a few years. I also want to let you know that working with a mortgage broker like myself is free and I’m happy to answer all of your questions along the way as you build a nest egg you’ll turn into a home later on. Give me a call today at (705) 315-0516 or click here to book a consultation and let’s outline a plan to get you where you want to be.

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